Despite experiencing some tough times
related to political turmoil and disturbances in the wake of assassination of
Benazir Bhutto, and of course the national elections, the insurance sector
continued to march confidently with lucrative profits soared by 102 percent and
in terms of exact figures the profitability increased to Rs72 billion in the
year ended December 31, 2007.

Besides the grey patch of political
disturbances and law and order situation which resulted in enhanced claims in
fire and motor segment to the level of 71 percent as compared 65 per cent
previously. The insurance industry otherwise can be rated as one of the fastest
growing sectors in Pakistan.

The growth momentum witnessed by the
insurance industry in 2007 was driven by stellar economic growth, record inflow
of direct foreign investment as well all time high home remittances, and
enhanced economic activity both in trade and industry.

Having a look at the performance of
active players in the insurance sector, the noticeable increase in the
profitability goes to the credit EFU which posted unusual profits worth over
Rs14 billion by December 2007.

The changing economic and political
scenario however may pose serious challenges to sustain the rising trends so far
witnessed in this sector, the mounting inflationary pressures, increasing
interest rates and declining demand growth witnessed in automobile sector which
contributes a major business to the insurance may call for careful handling in
the days to come.

According to available data, the
insurance companies" gross premium registered an increase of 15% at
Rs30billion

As against the growth of 23% last year,
which was however on the lower side when compared gross premium growth
previously mainly because of diminished performance of Marine and Motor
segments. Underwriting in these two sectors registered a growth of 10% and 6%
respectively.

It may be mentioned that Marine
Insurance with lower claims ratio was taken as a lucrative segment for the
insurance companies. However, in order to increase exposure in this lucrative
business, insurance companies have slashed down their rates consequently
affected the gross premium growth of this segment.

MOTOR INSURANCE

The automobile industry was considered
as the most vibrant sector so far on the economic scenario with an appreciable
performance to ignite a spark in various allied sectors including vendor
industry as well as the financial and insurance industry. However, the declining
car financing for quite sometimes has started to affect the Motor business
growth. It seems that the declining trend may persist in the days to come as
well because the increasing number of defaults and non-performing loans of the
banking sector in the current financial year 2008. Except Islamic Banks, most of
the conventional banks are giving a second thought to car financing and making
amendments in their products for car financing in order to be more cautious and
prudent in credit disbursement strategies. In this backdrop, it is feared that
the insurance industry might also be feeling the pinch.

Generally speaking, the general
insurance performance witnessing tremendous growth which was seen attaining the
level of 45% of GDP with insurance density calculated at US$3.7.

Adamjee Insurance which has positioned
itself on top of the insurance scenario moved to the status of the largest
non-life insurance company with a gross premium of Rs9.38billion to its credit.
In terms of performance the other stake holders are EFU general and new Jubilee
with

Underwriting businesses at Rs8.9billion
and Rs3.4billion respectively during the year 2007.

FALL OUT OF DISTURBANCES

Almost all the insurance companies
engaged in non-life business had to face the music in the wake of political
disturbances and law and order situation which had an adverse fall out with the
increase in claims increased to the level of 71% as against 63% previously.

It is said that all major insurance
companies witnessed losses in Fire and Marine business in 2007. The losses
incurred to the insurance companies in fire and marine business on the back of
law and order erupted following political disturbances.

The losses incurred by fire claims
however were made up through capital gains on the back of unusual performance of
the capital market in Pakistan.

REFORMS

the insurance sector went through a
major reform process during last five six years and resultantly direct insurance
premiums (excluding reinsurance premiums receivable by PRCL) have grown by 22%
per annum over the past five years.

As a result of this high growth in
premium insurance penetration has improved yet there is a lot of room exist for
improvement especially in the area of life insurance where Pakistan has a much
lower penetration (0.27% of GDP) as compared to India (2.53% of GDP) and even
Bangladesh (0.42% of GDP).

THIRD PARTY INSURANCE

The general insurance industry has
taken a serious note of what they called the bogus insurance companies issuing
spurious Motor Vehicle Third Party Insurance Policies for motor vehicle
registration purposes.

The care taker Prime Minister made a
historic decision that no bogus insurance companies would be allowed to trifle
with the serious business of third party insurance which causes serious social
repercussions for the persons affected.

Before handing over the charge to the
newly elected prime minister, the care taker Prime Minister issued directives to
Securities and Exchange Commission of Pakistan (SECP) to examine ways to prevent
the issue of bogus policies by fake insurance companies and ensure that third
party insurance policy would be issued by the registered insurance companies.

It was a good decision on the part of
the caretaker government, however it yet to be seen how the newly installed
government execute this decision which in the larger interest of the society.